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Inmates profit from homebuyer credit

Nearly 1,300 prison inmates across the nation swindled the government out of $9.1 million in tax credits reserved for first-time homebuyers, according to a Treasury Department report released Wednesday. Two hundred and forty one of those inmates were serving life sentences.

The report also found that another $17.6 million went to thousands of people who purchased their homes before the tax credit became law. In all, more than $28 million was improperly given out.

The greatest amount of fraudulent activity occurred in Florida. The report found that 61 percent of the prisoners serving life sentences who received the homebuyer credit were incarcerated in the Sunshine State.

The IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate Credits from being issued. Primary among these controls was the implementation of filters to identify questionable claims for the Credit before they are processed.

However, additional controls are necessary to address erroneous claims for the Credit. Further, fraudulent and questionable claims processed prior to implementation of controls will need followup action by the IRS.

Control weaknesses allowed fraudulent claims filed by prison inmates totaling an estimated $9.1 million to be processed. Multiple claims for the same home were allowed. In addition, claims totaling an estimated $17.6 million were allowed for homes purchased prior to the dates allowed by the law.

Many questionable claims for the Credit made on amended tax returns were not appropriately sent to the IRS' Examination function for scrutiny.